Yesterday, the Fourth District Court of Appeal rendered a decision in Condominium Association of La Mers Estates, Inc. v. The Bank of New York Mellon allowing a condominium default judgment for quiet title to stand. The Association had obtained title to a property through assessment foreclosure. Concerned about unpaid assessments, the Association offered to give the bank title – thereby entitling it to obtain ongoing assessment payments from the bank. Evidently the bank did not respond (although that is my assumption based on the course of events.) Several months later, the Association filed a quiet title action, claiming it owned the property and asking the court to quiet title on the property that was still subject to the mortgage. The Association claimed the bank had no bona fide interest in or claim to the property.

The Association obtained a default judgment. Over a year and a half later, the bank asked the court to vacate the judgment it declared was void, claiming the quiet title complaint was invalid (did not state a cause of action.) The trial court granted the bank’s request.

The trial court was probably correct that the complaint failed to state a cause of action. A quiet title action is intended to remove a “stale” encumbrance. Unless the bank had not initiated a foreclosure action until the “maturity date” of the mortgage or possibly even five years after that, it was probably not a stale encumbrance. Unfortunately, this would be true even if the association were being harmed by the bank’s delay.

However, another issue appears to not have been raised – lack of personal jurisdiction over the bank. In a 1940 Florida Supreme Court Case, Cone Bros. Constr. v. Moore, the Court explained that a senior lien holder (the lender) is not a proper party to a foreclosure action brought by a junior lien holder. The same logic should apply with a “quiet title” action by an association (in this case, the association whose property interest is inferior to the lender’s mortgage).

It does not appear that the bank claimed that there was no personal jurisdiction. If it had, the judgment should have been void (invalid from the start and unenforceable at any time). The court specifically stated, “the motion for relief in this case provided no other reason for vacating the judgment other than arguing that the complaint failed to state a cause of action. We hold that these allegations would render the judgment voidable, not void.”
That means the bank waited too long to move to vacate, based on its arguments. As a result, the Fourth DCA reversed the trial court’s ruling to vacate the judgment. Had the bank argued that there was no personal jurisdiction because it was an improper party, the Fourth DCA may have ruled differently.

What is the upshot of this? The association obtained a “free condo” probably because of the bank’s failure to properly frame its motion to vacate the default judgment. Does this mean that HOAs or condos should file quiet title actions, hoping that the bank will not properly object? That is a risky gamble. If the bank had defended the lawsuit, or even argued lack of personal jurisdiction, the association would lose. In that event, the association may be liable for attorneys’ fees that both the association and lender incurred, and sanctions against both the attorney and the client.

The Bank in this case could appeal to the Florida Supreme Court. It may not be over yet. Regardless, it is unlikely that lenders will continue making the same mistakes. Or is it? Time will tell.

DONNA DIMAGGIO BERGER is a Shareholder with the law firm of Becker & Poliakoff. She has represented all types of shared ownership communities throughout Florida over the last two decades and has worked closely with the Legislature to shape the laws that govern private residential communities.

LISA MAGILL is a shareholder in Becker & Poliakoff's statewide Community Association Law practice group. She has been a leader of and active in various organizations dedicated to community association issues, especially outreach and education.

LINDSAY RAPHAEL a partner with Tripp Scott, focuses her practice on condominium and homeowners association matters, as well as property financing and transaction counsel to buyers, sellers, lenders and developers of residential and commercial real estate. She is a regular contributor to Condo Management Magazine.

JEAN WINTERS has focused on representation of both community associations and homeowners living in associations since 2006. She is a partner at Winters & Winters, P.A. The firm has more than 30 years of combined experience in real property law.

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